Note that further to the weekend outlook (below), the US$ is opening broadly firmer on Monday morning in early Asian trade following the Sunday move by the PBOC to cut FX risk reserve ratio to zero.
The move is effective from Monday and comes after CNY ended at a 17-month high on Friday (6.6885)
Analysts say that the measure is meant to slow but not reverse the CNY appreciation which began in May.
The prospect of a limited US relief bill also seems to be underpinning the US$ in early Monday trade and the major counterparts are opening around 20-40 points lower than their Friday closing levels.
AudUsd is down 0.2%, to 0.7220 from NYK 0.7243 Friday close (early interbank trade saw it trade down to 0.7206). EurUsd has lost 0.15% (1.1815). US$Jpy is at 105.70. US$Cny is being marked up to 6.7300 on the screens.
The US$ tumbled through some significant support levels on Friday, while stockmarkets continued their recent rally as the risk-on mood took hold ahead of the weekend, underpinned by a WSJ report that the White House is preparing a US$1.8 trillion coronavirus-relief proposal, partly closing the gap in negotiations with congressional Democrats as time runs short to pass anything before the election. Although the White House offer is still short of the Democrat’s $2.2 trillion proposal, US Treasury Secretary Steven Mnuchin and Speaker Nancy Pelosi spoke again on Friday and hinted that they are slowly addressing some of the concerns that the Democrats have had, and that the negotiations are still seeking an agreement on the language of the plan, as well as the overall funding level.
The outcome for the FX markets has been that the DXY was down by around 0.5% on Friday, with the Euro and the Chf both negating the head/shoulder formation that we have been watching, while Sterling is back above 1.30 for the first time in a month. The Aud and the Kiwi also had a good session in trending strongly higher on the back of the risk on mood. The Jpy also took advantage of the dollar’s weakness, and being unable to hang on to 106.00, is now back at 105.60.
Global stocks had a good day in putting on between 0.6% (DJI) & 1.4% (Nasdaq) as improving risk-sentiment looked towards the possibility of further government stimulus, while the metals joined in, also taking advantage of the soft dollar and allowing Silver to rally by 5.4%, with Gold in its wake, up by 1.8%. Oil on the other hand gave up some of the gains that have propelled it higher this week, and WTI finished Friday down by 2%, but still up by 10% on the week.
The calendar was pretty much empty on Friday, but Sterling’s rally was notable despite the UK data showing that the UK GDP grew only 2.1% mm in August, well below expectation of 5.7% mm. It was the fourth consecutive monthly increase but the GDP remains -9.2% below pre-pandemic level in February.
The other economic interest lay in the Canadian unemployment data which was much better than expected in September. The net change rose by 378K, well above the expectations of 150K and, even better, most of the gains were in full-time employment, +334K, while part-time jobs rose by 44.2K. The headline unemployment rate fell sharply to 9.0% from 10.2%, well below expectations of 9.8%.
The coming week should start quietly enough, being the US Columbus day holiday (stock markets remain open but the Fed will be closed) and with almost nothing on the calendar aside from a speech from the BOE Governor, Bailey. The weekend PBOC move to cut the RRR to zero may bring about some exaggerated volatility, as will further headlines with regsard to any stimulus package and the election. Tuesday in Asia will have the China Trade Balance for September, and then also sees a busy session for Europe and the US, featuring the UK Unemployment figures (exp Headline rate: 4.1%,) and the German CPI (CPI, exp -0.1%mm, -0.2%yy; HICP, exp -0.1%yy) , both for September, along with the October German/EU ZEW Economic Sentiment Survey, and which will come ahead of the US CPI (exp 0.2%mm), also for September. Wednesday will be thin but will see the Australian New Home Sales for August, the EU Industrial Production (Aug) and the US PPI (Sept), while the focus on Thursday will be on the China CPI (Sept) and the Australian Unemployment (exp 6.4%, -50K) and then, later in the day, on the US weekly jobless claims and the Philadelphia Fed Mfg Survey (Oct). Finally, Friday will feature the latest US Presidential Debate during the Asian time-zone, ahead of the EU CPI (exp -0.4%mm, -0.2%yy), Trade Balance (exp €13.7bio) and the US Retail Sales (exp +0.5%mm), Industrial Production (exp +0.4%mm), Capacity Utilisation (exp 71.8%%), Business Inventories (exp +0.4%mm) and Michigan Consumer Sentiment Index (exp 81; Prior 84). Have a good week.
Economic data highlights will include:
Mon: US Columbus Day Holiday, NZ Visitor Arrivals, Japan PPI, BOE Speakers; Bailey, Haskel
Tue: NZ Food Price Index, REINZ House Price Index, Electronic Card Retail Sales, China Trade Balance, UK Unemployment, German CPI, German/EU ZEW Economic Sentiment Survey, US CPI, Monthly Budget Statement, API Weekly Crude Oil Stock Inventory
Wed: Australian New Home Sales, WBC Consumer Confidence, Japan Industrial Production, Capacity Utilisation, EU Industrial Production, US PPI, BOE Haldane Speech
Thur: Australian Unemployment, Consumer Inflation Expectation, NAB Business Conditions/Confidence NZ Credit Card Spending, China CPI, UK Credit Conditions Survey, UK Autumn Forecast Statement, US Philadelphia Fed Mfg Survey, weekly jobless claims, New York State Empire Mfg Index, Import/Export Index, EIA Weekly Crude Stocks Change
Fri: NZ Business PMI, IMF Meeting, US Presidential Debate, EU Council Meeting, EU CPI, Trade Balance, US Retail Sales, Industrial Production, Capacity Utilisation, Business Inventories, Michigan Consumer Sentiment Index
Market moves, in brief:
FX: DXY 93.04 (-0.57%)
Bonds: US10Y; 0.772% (-1.68%), German 10Y; -0.528% (-1.13%), UK 10Y; +0.279% (-3.06%), Australian 10Y; 0.812% (-2.05%), NZ 10Y; 0.555% (-0.63 %),
Stock Indices: DJI; +0.57%, S+P; +0.88%, NASDAQ; +1.39%, EUStoxx50; +0.53 %, FTSE100; +0.65%, ASX200SPI: -0.15%
Metals: Gold $1928 oz (+1.85%), Silver $25.12 oz (+5.4%), Copper $3.0795 lb (+1.23%), Iron Ore $124.45 per tonne (NYMEX) (+0.8%),
Oil: WTI $40.53 pb (-2.00%)
Trend Table: October 11, 2020
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|1 Hour||Turning Higher||Down||Up||Down||Up – Overbought||Up|
|4 Hour||Neutral – Turning Higher?||Turning Lower||Neutral – Turning Higher?||Turning Lower?||Turning Higher||Neutral – Turning Higher?|
|1 Day||Neutral – Turning Higher?||Neutral – Turning Higher?||Neutral – Turning Higher?||Neutral – Turning Lower?||Turning Neutral||Neutral|
|1 Week||Possible Topping Formation||Turning Neutral||Neutral – Turning Lower?||Possible Basing Formation||Possible Topping Formation||Possible Topping Formation|
|1 Hour||Turning Lower||Neutral – Turning Higher?||Turning Lower?||Up – Overbought||Up||Neutral – Turning Lower?|
|4 Hour||Turning Lower?||Up||Overbought – Turning Lower?||Neutral – Turning Higher?||Turning Higher?||Turning Lower?|
|1 Day||Turning Neutral||Neutral – Turning Higher?||Turning Neutral||Neutral – Turning Higher?||Neutral – Turning Higher?||Neutral|
|1 Week||Possible Basing Formation||Overbought – Turning Lower?||Turning Neutral||Turning Lower||Turning Lower||Neutral|
|1 Hour||Bearish Divergence||Turning Lower?||Turning Neutral||Turning Higher?||Turning Lower||Neutral – Turning Lower?|
|4 Hour||Turning Neutral||Turning Neutral||Neutral||Turning Higher?||Turning Lower?||Turning Lower?|
|1 Day||Turning Higher?||Turning Neutral||Turning Neutral||Turning Neutral||Neutral||Neutral – Turning Higher?|
|1 Week||Neutral – Turning Lower?||Turning Neutral||Turning Neutral||Possible Topping Formation||Turning Neutral||Neutral – Turning Lower?|
The “risk-on” mood took a significant upturn on Friday as hopes grow of a pandemic stimulus package ahead of the US election, culminating in stronger stock markets and a weaker US$. For the time being – as long as the stimulus news remain positive – this could well eventuate in further gains for stocks, while the dollar seems set to remain pressured to the downside. Certainly this is what the short term momentum indicators for many risk associated assets seem to suggest although it is a US holiday on Monday and it could end up being a fairly sideways session.
EurUsd: The Euro finished the week at 3 week highs and negated the H/S formation that we have been watch in the process. Having finished back above the neckline, the way now looks open to further gains as long as the positive risk mood drives the price action. If so, the next targets seem to be at 1.1857 (61.8% of 1.2010/1.1611) and then at 1.1916 (76.4%/10 Sept high), beyond which would open the chance of another test of 1.2000/10, albeit not yet. On the downside, support will now be seen at 1.1800, where the previous neckline now lies, below which would open the way to 1.1775 (55/100H MAs) and then at 1.1750 (200 HMA). Below there now looks unlikely in the near term but if wrong, look for further declines towards 1.1726 (7 Oct low), 1.1715 (200 HMA) and 1.1700, below which would then open 1.1685 and eventually the 25th September low at 1.1611 albeit probably not for quite a while. Look to buy 1.1800/1.1780 today, with a SL sub 1.1750.
AudUsd: It was a strong week for the Aud$ and the short term momentum indicators suggest that there may be more to come, albeit that the Aud is currently up against descending trend resistance as can be seen on the chart. As long as the risk mood remains positive, and if the Aud can overcome 0.7255 (61.8% of 0.7413/0.7005), we may then see a run towards 0.7300 and to 0.7315 (76.4%). Beyond there would open the way once more to 0.7400/0.7413 (1st Sept high), albeit not yet. On the downside, support will be seen at 0.7210/00, which looks pretty safe today, but below which would find Fibo support at 0.7188 (23.6% of 0.7005/0.7242) and again at 0.7155 (38.2%)
GbpUsd: Sterling remains very difficult because of the added headlines regarding Brexit but it does seem to have made a break to the topside and seems to be carving out a reverse head-shoulder formation which would have a measured target from the neckline of 1.3330. The short term momentum indicators back up the positive vibes so buying dips towards 1.3000, with a SL placed sub 1.2970 currently seems to be the plan. Below there could see a return to rising trend support at 1.2880 and buying again there with another tight stop loss may be the plan if we get down there. On the topside, ahead of 1.3300, plenty of resistance levels will be seen, at 1.3075 (50% pivot of 1.3481/1.2675), at 1.3180 (61.8%) and at 1.3295 (76.4%).
S+P: With the market becoming eager for a Covid stimulus package, further upside progress seems to lie ahead for the S+P (and other related indices). If so, the next point of interest will lie at 3495 (76.4% of 3586/3197), beyond which could then stretch above 3500, possibly back to the all-time high at 3586. It seems pretty mad given the circumstances but who is to argue. A failure of the US Senate to reach an agreement would see a sharp turn lower, with minor support currently seen at 3425, at 3400 and then at 3375.
Gold: Gold has broken back above the 2 month downtrend resistance and the 2008 all-time high of 1921 and currently sits at 1930. The short term momentum indicators are supportive of further gains, where the next resistances are to be found at 1935 (38.2% of 2075/1848) and then again at 1960 (50%) and at 1988 (61.8%). The dailies, which have been neutral, also seem to be gaining a little upside momentum so buying dips is preferred, but with a tight SL back below 1900. The longer term, weekly charts still look heavy so caution is warranted and back below 1900 could see a quick return to 1875 and to the September low at 1848.